Why the Over The Wire (ASX: OTW) share price is under scrutiny

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the Over The Wire Holdings Ltd (ASX: OTW) The stock price is under scrutiny today after giving investors a trade update.

Over The Wire is a provider of telecommunications, cloud and IT solutions. It also offers products such as data networks, internet, voice, colocation of data centers, and cloud and managed services.

OTW Business Update

The company told investors that a major IT hardware supply contract, for which a substantial down payment has been received, will not be delivered to the customer until fiscal 22.

This means that the revenue and profits from this contract will now be recognized in FY 22, not FY 21.

Management said recurring revenue and recurring profits are expected to remain strong and in line with company plans.

The company said it is unfortunate that the schedule for this specific equipment supply contract falls in fiscal 22, but this has no further impact on organic growth and the growing profit profile. strengths of society.

This delay was due to manufacturing and shipping delays. The company has already received a deposit of 50% of the contract.

FY21 Forecast

Based on the accounting work done to date, the company expects revenue of around $ 112 million. Organic growth in recurring revenue from the first half to the second half of FY21 is expected to be around 7%.

New recurring revenue signed in the fourth quarter is expected to exceed $ 350,000 of monthly recurring revenue (MRR) contracted.

EBITDA (EBITDA explained) is expected to be around $ 23.5 million.

Half of the expected EBITDA of the Level 1 (carrier interconnect) voice provider project is expected to be achieved from July 1, 2021.

Approximately $ 5 million in revenue and $ 1.5 million in EBITDA are expected to be recognized in FY22 as a result of this delayed contract.

Management comments

OTW General Manager Michael Omeros mentionned:

Our pipeline of signed and potential deals remains extremely positive and positions us well to generate organic growth during FY22 in line with our target of 15%. This is an exceptional result of our team and demonstrates that our Cloud. Connect. Collaborate. offers provides the right results to our customers. Our goal remains to build a successful long-term business and we continue to invest for growth and in positive solutions for our customers. Some of our recent investments include our level one voice network, super core, and international capacity. By the end of the calendar year, we also plan to have the digital sensing cloud in Sydney and Melbourne to take advantage of the continued demand for the cloud.

Synthetic thoughts on OTW and the share price

OTW appears to be a solid company, but its valuation is now quite high on a price / earnings ratio based.

It would be a good deal to own for the long haul, but I’m not sure I want to buy today with strong growth already factored in.

There are other ASX growth stocks that could be of more interest.

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